GLOBAL MARKETS-Asian stocks fall on Fed policy plan, China data looms

June 19, 2013|Reuters

* MSCI Asia ex-Japan slips 1.7 pct, Nikkei down 0.6 pct

* U.S. Treasury yields hit 15-mth high, underpin dollar

* China "flash" PMI due at 0145 GMT

By Chikako Mogi

TOKYO, June 20 (Reuters) - Asian shares deepened losses onThursday after U.S. Federal Reserve Chairman Ben Bernankeconfirmed market fears that the Fed would begin reducing itsstimulus later this year as the economy improved.

Sentiment was also fragile ahead of an HSBC "flash" reporton China's factory activity, due at 0145 GMT, which couldprovide fresh evidence of weakness in Asia's largest economy.

"Given the market's growing fears over a hard landing forthe Chinese economy, a particularly weak number could add to thepost-FOMC selling pressure on the emerging currencies as well asthe commodity bloc currencies," analysts at BNP Paribas wrote ina note.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.7 percent, with Australian shares tumbling 1.4 percent for their largest one-day drop in a month,while South Korean shares fell to seven-month lows.

U.S. stocks tumbled more than 1 percent on Wednesday andbenchmark 10-year U.S. Treasury yield surged to 2.37percent, a fresh 15-month high, while the dollar advancedbroadly on the back of the rising yields.

Bernanke said on Wednesday the U.S. economy is expandingstrongly enough for the Fed to begin slowing the pace of its $85billion monthly purchases of Treasuries and mortgage-backedsecurities, with the goal of ending it in mid-2014. But he alsonoted the central bank would withhold from tapering if economicconditions deteriorated.

"Bernanke was more explicit than markets had expected.Rising U.S. yields will spur broad dollar buying. The dollar'sdirection is now set," said Yuji Saito, director of foreignexchange at Credit Agricole in Tokyo.

"Volatility may stay high until bonds and stocks stabilise,but once the initial round of reaction subsides, markets areleft with a clear direction," Saito said.

He said the contrast between Fed's shrinking balance sheet and the Bank of Japan's rapidly expanding holdings would spark the dollar to resume its climb against the yen.

Bernanke first raised the idea of a sooner-than-expectedtapering on May 22, triggering global financial market turmoilespecially in emerging markets, as the Fed's massive bond-buyingprogramme has been a driving force behind the rally in riskassets globally.

Investors have been unnerved by the prospect of emergingeconomies or risk assets such as shares being undermined byoutflows of money as the Fed curbed its stimulus, but othershave noted that a stronger U.S. economy will eventually underpininvestor sentiment and global economies.

"(Reduction of stimulus measures) is something the markethas to get over. You cannot ride on four-wheel bicyclesforever," said Kim Hyoung-ryoul, a market analyst at KyoboSecurities. "In time, confidence in U.S. economy will berestored ... we may see some short-term volatility as money willlikely flow to U.S. markets."

Japan's benchmark Nikkei stock average was down 0.6percent after opening down 1.1 percent.

The dollar was up 0.2 percent against the yen at 96.68 after rising to a high of 97.03 yen on Wednesday, movingaway from its 10-week low of 93.75 yen hit last week. Itremained well below last month's 4-1/2-year peak of 103.74 yen.

The euro eased 0.2 percent at $1.3272, off afour-month high around $1.3418 hit on Wednesday.

Bernanke's comments drove the Australian dollar down morethan 2 percent to below $0.9300 for the first timesince September 2010. The Aussie last traded at $0.9282. TheAussie has been sold not only as a commodity currency but alsoas a proxy for emerging markets.